Mainland China shares fall ahead of IPOs, Hong Kong gains as near term rate rise seen unlikely

PUBLISHED : Monday, 01 August, 2016, 9:25am
UPDATED : Monday, 01 August, 2016, 10:51pm

Mainland Chinese stocks fell on Monday as investors stayed on the sidelines ahead of a new batch of initial public offerings that promise gains, though the market faces potentially tighter rules on wealth management products.

In contrast, Hong Kong’s market posted gains, driven by the financial and property sectors as weaker US economic data reduced the chance of an interest rate rise in the near term.

The Shanghai Composite Index closed at 2,953.39, down 0.87 per cent or 25.95 points, while the CSI 300 was down 0.85 per cent or 27.12 points to 3,176.81.

The Shenzhen Composite Index fell 1.49 per cent or 28.91 points to 1,912.65 while the Nasdaq-style ChiNext lost 1.09 per cent or 23.23 points to 2099.18.

The Hang Seng Index ended 1.09 per cent or 237.77 points higher at 22,129.14, while the Hang Seng China Enterprises Index gained 1.9 per cent to close at 9,129.2.

“Mainland investors were attracted by the new IPOs,” Lukfook Financial analyst Xie Jinchao said.

Nine companies will kick off share sales in the mainland this week, a number rarely seen since Chinese regulators allowed the resumption of IPOs in November last year after the 2015 summer stock market rout. The new listings include Bank of Guiyang, the second largest IPO in Shanghai this year with a fundraising target of 4.1 billion yuan.

The companies are attractive because in the mainland, IPOs almost always generate absolute gains for subscribers after their trading debut
Xie Jinchao, Lukfook Financial analyst

“The companies are attractive because in the mainland, IPOs almost always generate absolute gains for subscribers after their trading debut,” Xie said.

Mingyi Li, an analyst with China Investment Securities, said last week’s news that Chinese regulators plan to introduce tightened regulation on Wealth Management Products (WMPs) will put continued pressure on the stock market.

The slide in stocks also came after National Bureau of Statistics reported China’s official purchasing managers’ index in July was 49.9, lower than 50 in the previous month. A reading below 50 indicates contraction in activity. The official data compared with a surprise 50.6 reading of the Caixin manufacturing PMI, standing above 50 for the first time in 17 months. The Caixin PMI mainly tracks small and medium-sized businesses.

Hong Hao, managing director and chief strategist with Bocom International, said that the stronger Caixin PMI reading may be related to seasonal factors. “When you look into it, the underlying elements are actually still slowing,” he said.

In Hong Kong, the banking, insurance and property sectors shrugged off economic concerns and rallied.

Bank of China gained 2.19 per cent to HK$3.26 while Industrial and Commercial Bank of China ended 1.82 per cent higher at HK$4.47. AIA Group shares rose 1.98 per cent to HK$49, after it raised its interim dividend 17 per cent last week following strong net profit results.

US gross domestic product rose 1.2 per cent year on year in the second quarter, much lower than market expectations of 2.6 per cent, according to a poll by Reuters.

“The weak US economic data stimulated the market as it reduced the chance of a rate hike in the near term,” said Alex Wong, Ample Finance Group director. “Meanwhile robust [US] consumer spending showed the recovery was not too weak.”

The Macau gaming sector also gained, as government data showed the drop of gross gaming revenue in July slowed to 4.5 per cent year on year, equal to 17.8 billion patacas, up 12 per cent from June.

Sands China shares rose 1.52 per cent to HK$30.05 while Galaxy Entertainment gained 0.58 per cent to HK$25.95.

Media Chinese International shares at one stage doubled to HK$2.5 after they resumed trading in the afternoon, but retreated to close at HK$1.38, up 14.1 per cent. The firm announced at noon Monday the disposal of the 73.01 per cent shareholding of its subsidiary One Media Group – operator of Hong Kong magazine Ming Pao Weekly – for HK$498.06 million to Qingdao West Coast Holdings (International) Limited.